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Serious illnesses can significantly impact our lives, from causing emotional distress to financial strain. While we can’t always prevent these health issues from occurring, we can take steps to protect ourselves and our families from their potential consequences.
One such step is getting critical illness insurance, which provides financial support if you are diagnosed with a covered illness. But with so many options available, it can be challenging to know how much coverage you need.
In this post, we’ll explore the factors you should consider when determining the appropriate level of critical illness insurance coverage so that you can make an informed decision about your insurance needs.
- Key takeaways:
- Critical illness insurance pays a tax-free lump sum if you are diagnosed with a covered condition, like life-threatening cancer or heart attack.
- To ensure financial relief, it's important to purchase enough coverage to cover medical and living expenses, replace your monthly income, and more.
- Non-income earning partners and children are also good candidates for critical illness insurance, although insurance companies limit how much insurance they can get.
What Is Critical Illness Insurance Coverage?
You’ve worked hard and made wise financial decisions to achieve success. But have you considered the economic impact of a serious illness on your life? Medical advances over the last few decades have resulted in more people surviving critical illnesses. However, not only can recovery be long and difficult, but it can also be costly.
With critical illness insurance, you transfer the financial risk of a severe illness to an insurance company. The critical illness policy pays you a tax-free lump sum if you are diagnosed with a covered condition. The payment helps keep your financial plan on track while you focus on recovery.
What does critical illness insurance cover?
Unlike disability insurance coverage, which pays a monthly benefit if you can’t work due to an injury or illness, critical illness insurance pays a one-time benefit if you are diagnosed with a covered disease. Most policies have 25 or 26 conditions covered, including life-threatening cancer, heart attack, stroke, multiple sclerosis, and Alzheimer’s disease.
Besides these serious sicknesses, a critical illness policy also pays a partial benefit for less severe illnesses like coronary angioplasty and early-stage thyroid or breast cancer.
How Much Critical Illness Insurance Do I Need?
What can you do with the lump sum amount? Because it’s not a reimbursement-type insurance policy, there are no restrictions on using the critical illness benefit. For instance, you can use the payout to cover monthly expenses like mortgage payments. Therefore, you can treat the benefit as an income replacement to afford yourself time off work.
What expenses do you need to cover?
To calculate how much coverage you should get, you need to consider the following categories of expenses: medical expenses, living expenses, lost income, home modifications, caregiver expenses, and travel expenses. Let’s break down each category one by one.
Medical expenses
While most Canadians have coverage for emergency medical expenses like a hospital stay and surgery through the provincial health plan, it doesn’t cover all your costs. Prescription drugs taken at home and paramedical services like physiotherapy are a few medical expenses that aren’t covered by provincial health insurance.
With 28-day treatment cancer drugs over $7,500 accounting for more than half of all oncology sales in Canada in 2019, the financial impact of a critical illness diagnosis has never been greater.
Average amount for medical expenses: $40,000
Living expenses
You’ll want to have enough benefits to cover ongoing monthly expenses, which include:
- Housing costs like mortgage payments or rent
- Other debt payments like credit card debt and car loans
- Food and groceries
- Utilities like heat and electricity
- Internet and phone bills
- Transportation and other travel expenses
- Child care expenses
If you have long-term disability insurance coverage with a 90 or 120-day waiting period, you can use the benefit to pay for these current monthly expenses for 3-4 months. After that, disability insurance covers your costs by paying a monthly benefit.
Qualifying for disability benefits is different than for critical illness insurance. While critical illness insurance will pay the lump sum if you are diagnosed with a covered illness, disability insurance only pays if you can’t perform the tasks of your occupation. Therefore, there’s a chance you will qualify for one but not the other.
Also, you can reduce the amount you need in this category if you have an emergency fund that covers 3-4 months of living expenses.
Average amount for living expenses: $15,000
Lost income
This category overlaps with the one above since the benefit replaces your lost income and pays for monthly expenses at the same time. However, your income may not be the only one interrupted. A severe illness not only affects you, but it can also impact family members.
In particular, your partner may need to take a few months off work to take care of you. Therefore, you should budget around three months’ worth of income that your spouse will lose.
Average amount to replace lost income: $15,000
Home modifications
A serious illness may permanently impact your mobility. As a result, you may not be able to move freely in your home without wheelchair ramps and lifts, grab bars, or other assistive devices. You may also need to widen doorways and refit your kitchen and bathrooms.
That’s why it’s important to allocate a part of the critical illness payout for modifications that enhance your mobility within your home.
Average amount for home modifications: $10,000
Caregiver expenses
This is another extra cost you may face upon a critical illness diagnosis. Because the sickness may impact your mobility, you may need the help of a caregiver to perform the activities of daily living. Besides taking care of you, a caregiver can also prepare meals, do household chores, and transport you to medical appointments.
Caregiver costs vary depending on the service type provided and the required skill level. While these can be difficult to predict, you may be looking at up to $4,000 per month for skilled nursing care. For three months of care, budget around $10,000 for caregiver expenses.
Average amount for caregiver expenses: $10,000
Travel expenses
Besides the medical treatment your provincial health plan provides, you can also opt for treatment at private clinics or alternative therapies. You can even get treated in another country, like the United States. Travelling out of the country for medical care, also called medical tourism, has been gaining popularity in recent years for many reasons, including:
- A shorter waiting period to access medical care
- Lower cost of treatment
- Availability of treatment not accessible in Canada
Since travel medical insurance doesn’t cover the cost of medical tourism, you should budget for the expenses with your critical illness insurance coverage. Flights and accommodations cost a few thousand dollars, and you may need to go several times for multiple appointments.
Average amount for travel expenses: $10,000
How much coverage do you actually need?
Once you’ve calculated the subtotal for each category of expenses, you can add them up to figure out the total coverage amount you need. Using the average amounts above, the total ends up being $100,000.
Does that mean you should get $100,000 of critical illness insurance coverage? Not necessarily. A serious illness may not occur for 10 or 20 years, so you also want to account for inflation and insure your future health. At 3% inflation, you will need $135,000 if a critical illness occurred after 10 years and $182,000 if it happened after 20 years.
How much critical illness insurance coverage does a stay-at-home partner need?
Just because a stay-at-home partner does not earn an income, doesn’t make the financial hardship any less if they are diagnosed with a serious illness. All the expenses mentioned above also apply to a stay-at-home partner. Therefore, it’s not uncommon to see couples buy the same coverage amounts.
A few underwriting rules apply for the non-income earning spouse. First, the income-earning spouse should have at least as much as the non-income earner (unless they are uninsurable). Second, the most coverage a non-income generating partner can get is $250,000, although exceptions exist.
How much critical illness insurance coverage does a child need?
Because children can’t buy disability insurance, critical illness insurance is one of the only ways to protect their health financially. The amount of coverage you get should allow you to take time off work to be with your child, choose the best medical care available, and focus on your child’s recovery and not other financial concerns. Therefore, you may buy a similar amount for your child as yourself.
Life insurance companies have restrictions on how much insurance a child can get. For amounts up to $500,000, both parents should have some critical illness coverage. If you want to get more than $500,000 for your child, both parents should have more than that.
Also, siblings should be insured equally unless one of them is uninsurable. All in all, children can be covered up to $1,000,000.
Every insurance company has its own rules for non-income earning spouses and children, so consult with an insurance advisor for the guidelines of an insurer that allow you to buy the amount you want.
How much critical illness insurance can you get?
The maximum coverage amount you can get is $2,500,000. However, depending on your income and mortgage balance, you may qualify for less. For instance, you may be able to get 10 times your earned income plus the mortgage balance on your home if you are between 18 and 55 years old.
Need A Critical Illness Insurance Quote?
Life is full of surprises. The financial impact of a serious illness shouldn’t be one of them. Ensure it doesn’t disrupt your financial plan by protecting yourself with a critical illness policy.
Contact us today at info@briansoinsurance.com or 604-928-1628, and we will help you get the best coverage available. Get a free no-obligation consultation where we will match you with the perfect critical illness plan for your situation.
Get Your Critical Illness Insurance Quote Now
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